The U.S. Congress begins a summer of important debates on the future of American energy policy—debates that the Group of Eight industrialized nations can help shape at their summit in Germany this week by focusing on the devastating impact high energy costs and climate change have on the world’s most vulnerable populations.
The U.S. Congress is ready to combat climate change, notwithstanding the difficulty of changing President Bush’s views on these matters. And other members of the G8—Great Britain, Germany, Japan, France, Italy, Canada, and Russia—have an opportunity to push for American leadership on reducing greenhouse gas emissions during the G8 summit.
One important way to do that is to enact policies that offer the most vulnerable communities in the world the support they need to combat the impact of climate change and help them and the rest of the world transition to a low-carbon global economy. This is a climate debt the industrialized world owes to these poor nations.
Our Climate Debt
The world’s leading climate scientists recently concluded it is very likely that most of the observed increase in globally averaged temperatures since the mid-20th century is due to the increase in greenhouse gas concentrations. What’s more, the Intergovernmental Panel on Climate Change recently warned that the likely consequences of this change in climate include more frequent droughts, more frequent and severe shifts in weather patterns, and decreased food availability.
The IPCC reports underscore the cruel irony implicit in climate change—that the overwhelming environmental costs of climate change will be felt in those countries least responsible for the atmospheric concentrations of greenhouse gases and least able to deal with the consequences. The people least responsible for climate change will pay the biggest price, both in terms of economic costs and human costs.
Over the next 50 years, the poorest countries on the planet will face a series of monumental challenges, among them:
- Coastal countries in Africa will have to spend 5 percent to 10 percent of their gross domestic product to adapt to rising sea levels
- Up to 250 million Africans will be exposed to new water shortages
- Food production in some countries will be cut in half
- Billions of people in Asia will be at risk from flooding
- Mosquito-born diseases will expand their reach into new territory, exhausting already deficient health care services.
The industrialized world, led by the G8 countries, needs to ensure that those most responsible for climate change help those least able to deal with global warming.
Balancing Our Climate Debt
Current levels of development assistance from the industrialized world are woefully insufficient to help the least developed nations cope with this coming onslaught. Moreover, many developed countries, including the United States, do not calculate the costs of combating climate change when reviewing the long-term viability of the projects they are funding. A significant proportion of development aid, which is already inadequate, may be going to waste.
Worse yet, this failure in planning can exacerbate environmental vulnerabilities in these countries by, for example, encouraging human settlement in ecologically high-risk areas. Case in point: Take a closer look at Nepal, where nearly every aspect of national economic growth and development—from agriculture to hydroelectric power—depends on glaciers and water resources. With Himalayan glaciers receding at a rate of 30 meters to 60 meters per decade alongside decreased snowfall and ice melts, global warming is dramatically altering water resources in this already impoverished mountain country.
The most immediate and catastrophic threat to Nepal are so called “glacial lake outbursts,” a phenomenon where swelling glacial lakes reach a critical volume and rupture their natural confines. This causes violent flood waves that can reach as high as 15 meters, destroying downstream settlements, damns, bridges, and other infrastructure. These floods, or “tsunamis from the sky” as the Nepalese call them, are occurring with increasing frequency: once every two or three years now compared to once every 200 to 300 years before the onset of human-driven global warming.
Millions of dollars in recent investment have been lost to these lethal floodwaters. Some projects under construction have been destroyed before they were ever operational. Yet current hydroelectric power and infrastructure design in Nepal largely fails to take into account the risk of glacial lake outburst flooding in relation to Nepal’s some 2,000 glacial lakes. Early-warning systems are regrettably deficient where they exist at all.
For a country that is suffering already from global warming, more needs to be done. Foreign aid makes up 7 percent of Nepal’s GDP ($533 million in 2004/2005)—money that should be spent on projects that will be viable under the near-term conditions of global warming.
The World Bank estimates that 40 percent of development assistance and major financing, or approximately $40 billion, is directed annually at activities that will be affected by climate change. The Organization for Economic Cooperation and Development has done case studies that show the range of climate-sensitive development aid runs from 50 percent to 65 percent in Nepal, but to only 12 percent to 26 percent in Tanzania.
For the United States, which has not yet undertaken a climate-risk assessment of its development activities, taking this first step would immediately improve the efficacy of U.S. aid dollars and help the world’s poor meet the escalating development challenges they face under climate change. But this is only a start to what needs to be done.
In order to ensure that lesser-developed countries have the capability to develop without relying on high-carbon technologies, the G8 nations and other industrialized countries led by the United States should seek to transfer to poorer countries the tools to drive their development along an alternative, clean energy path. This will be vital to the health of the global environment.
Two-thirds of growth in energy demand over the next 25 years will come from developing countries. Their share is projected to jump from 37 percent today to nearly half in 2030. Unless a low-carbon energy infrastructure is put in place today in the developing world, oil, coal, and gas will continue to account for around 80 percent of energy consumed in 2030.
This is the principal challenge in avoiding the worst, longer-term consequences of climate change. This is why diversifying energy supplies away from fossil fuels is smart economic policy for these countries. Some of the poorest countries in the world are so dependent on oil imports that their already fragile economies have been hit 10 times as hard as the U.S. economy by the oil price shocks of the past years.
Sudden increases in the price of oil severely stunt economic growth in the developing world, hijacking scarce government resources and causing the prices of local transportation and basic commodities to skyrocket. Diversified energy infrastructures would build economic resilience and put these countries on track to better manage energy-related setbacks to sustainable development.
Helping To Pay Our Climate Debt
Market-based financing mechanisms as well as grant and loan programs should all be designed to prioritize the transfer of clean energy technology and assistance to the developing world, especially least-developed countries, where clean energy should be mainstreamed into national economic development strategies. One key way to do this is through a market-based instrument, the international carbon-offset markets, which will play an important role in the de-carbonization of the developing world.
This new marketplace is regulated under the Kyoto Accord through the Clean Development Mechanism, or CDM, which is increasing capital flows by billions of dollars to the developing world for greenhouse gas mitigation and clean energy development. Since 2002, this carbon trading system has transferred $14 billion to the developing world.
Compared with global development assistance dollars that target energy and environment projects—an estimated $3 billion to $5 billion annually—a carbon-trading system with dedicated international offsets can channel significant funds to the energy sectors in the countries that will be hit hardest by climate change. The United States, which is not a signatory of the Kyoto Accord, should carefully consider how to design its domestic emission regulation to optimize the transfer of capital and technology to the most vulnerable countries. Here are our recommendations:
- The Government Accountability Office should evaluate what steps, if any, U.S. government agencies (including the U.S. Department of State, U.S. Agency for International Development, the Millennium Challenge Corporation, and the U.S. Department of Agriculture) can take to assess the impact of climate change on the sustainability of U.S. overseas development assistance and other development investments.
- Congress should mandate any new foreign assistance under the Foreign Operations law consider whether such aid will result in increased greenhouse gas emissions, and whether steps need to be taken to boost the sustainability of new foreign aid given likely impact of climate change in project-feasibility assessments.
- Congress and the Bush administration need to redirect existing programs to promote U.S. exports that encourage the development of new and innovative energy sources that will ensure new energy development is low carbon.
Specifically, a clutch of federal agencies and programs in Washington should take these key steps:
Export-Import Bank. Congress should mandate that a percentage of all EX-IM Bank credit be extended to projects that are clean-energy related. Such a target is currently used to guarantee that small business receive at least 20 percent of all Ex-IM Bank credit. Congress could create a facility at EX-IM dedicated solely to clean energy projects in least developed countries. Congress should also authorize EX-IM to pursue partnerships with private banks on clean energy projects, and restore the Office of Renewable Energy at the EX-IM Bank that is charged with identifying credit-worthy clean energy projects.
Department of Treasury. Congress should extend EX-IM loan repayment time for clean energy projects by negotiating the necessary changes to the existing OECD financing arrangement. Congress should require the Department of the Treasury to coordinate the Export Credit Agency policies of countries around the world to facilitate funding for clean energy projects. ECAs account for $75 billion to $90 billion of investment per year.
Department of Commerce. Congress should provide funding for the Department of Commerce to hire new Foreign Commercial Service Officers in least developed countries who are responsible for facilitating local clean-energy projects with U.S. businesses.
U.S. Trade and Development Assistance. Congress should increase funding for TDA projects to promote environmental and energy technology market access for least developed countries.
U.S. Trade Representative. Congress should mandate that special provisions for investments in clean energy and carbon finance be created within the African Growth and Opportunity Act.
Yet even if appropriate measures were taken today to reduce global emissions by 80 percent by 2050, current atmospheric concentrations of carbon dioxide and other long-lived greenhouse gases are already such that the next 50 years of climate change cannot be averted. The global poor have few means of adapting to these expected changes.
New water shortages, increasingly prolonged and frequent droughts, and reduced crop yields are now common across the African continent. Islands and low-lying coastal areas are under serious threat. Unpredictable river-water levels and reduced river flow in Asia produce agricultural uncertainties amid heightened flood risks. These are some of the gravest challenges that the world will confront over the next 50 years—even under the least-severe scenario of climate change. These new environmental pressures will intensify preexisting poverty and disease and reverse the gains of poverty alleviation efforts underway in some places.
The World Bank has estimated the cost of adapting to climate chance among developing countries at between $10 billion and $40 billion annually. New studies, which calculate a more complete range of costs, suggest this figure is low. Including the costs of making adjustments to policy planning, climate-proofing ongoing investments, and making additional investments to reinforce natural resources and physical infrastructure, these new assessments show that at least $50 billion annually will be needed.
What’s clear is that the consequences of climate change will require additional resources over and above those currently dedicated to development. Some of the new investments and programs now required in the developing world include: drought-resistant seeds; new water management technology; improved meteorological forecasting; and climate risk-assessment tools for policy planning. Additional investment and technical assistance in these and other arenas will be crucial to the survival of millions of people in hardest-hit parts of the developing world.
While the industrialized countries that have ratified the U.N. Framework Convention on Climate Change are required to provide assistance to vulnerable developing countries to help them to adapt to adverse climate impacts, very little has been done to date. Of the three adaptation funds that have been established, a mere $182 million dollars has been committed—an inconsequential amount compared to the estimated tens of billions of dollars needed to meet these new challenges. To shift course, we offer the following recommendations:
- The United States should establish an international climate change adaptation fund with new money over and above what is already dedicated to development assistance. It may require the creation of a new program, not unlike the president’s Millennium Challenge Corporation. In fact, Congress should consider changing the mission (and re-dedicating the existing funding) of the MCC for the purposes of funding climate change adaptation strategies.
- If Congress moves to establish a federal emissions regulatory program to mandate reduced greenhouse gas emissions, then the United States should dedicate a percentage of the revenue generated through the auction of emission credits to an International Adaptation Fund. The acute need for this funding reinforces the relevance of an auction-based allocation design in the pending emissions regulation legislation now before Congress. The legal principle of “the polluter pays” offers longstanding precedence for generating and tapping auction revenue.
- U.S. representatives at all of the global development banks and the agencies of the United Nations should use voice and vote to increase assistance dedicated to adaptation.
The United States clearly has the leadership capacity and policymaking prowess to help the world’s least developed nations weather the costly consequences of climate change in the coming 50 years. But the United States must change course in international negotiations and begin working with the other members of the G8 to move beyond the current stalemate. Every lost opportunity to build cohesion around international efforts to curb greenhouse gas emissions is dire; only a concerted, global approach will be sufficient to address this problem.
The G8 nations, whose historical greenhouse gas emissions constitute the majority of the greenhouse gas concentrations in the atmosphere today, share a unique responsibility to work together to begin pushing for these types of programs. And our allies in the industrialized world need to ensure that the Bush administration understands the full extent of what must be done.
To read the Center’s environmental and energy research and analysis, please go to the Energy and Environment page on our website.